The procurement function at leading companies is having a bigger impact than ever on the bottom line and in guiding business processes — with 90% of those CFOs saying that procurement professionals now have an active role at the executive table, and two-thirds say they have a good understanding of procurement performance, according to the recent A.T. Kearney Realizing the Power of Procurement report.
The report says that procurement executives still “must show stakeholders that they understand internal business requirements. And they must communicate that state-of-the-art procurement is more than cost savings.”
The results indicate how leading procurement teams perform (in the top 7% for performance) versus how non-leading teams do in a number of key areas — like improving working capital, improving visibility into spend, supplier management, analytics and even talent management.
The data come from responses to Kearney’s annual Assessment of Excellence in Procurement survey, used to examine leadership practices and their impact on results within the business. Assessments were developed from over 150 responses from procurement executives: 39% of which were in the Americas, 53% in EUME, and the remaining 8% in APAC. A third of respondents represented service industries, 28% consumer and retail, with the balance split between process industries and discrete manufacturing.
Procurement must go beyond traditional roles
At leading organizations, 90% of procurement programs reportedly had a high impact on improving working capital, and 70% felt the same regarding operating efficiencies compared to just 32% and 26% reporting a high impact in these areas among all other respondents. Best of all, procurement organizations following best practices on key areas of procurement team excellence, procurement category excellence, and supplier excellence reported 2x-3x greater return on their investment in their procurement departments compared to companies in the middle of the pack, and nearly 10x greater than companies in the bottom 25%.
World-class procurement departments go well beyond their traditional purchasing roles, while at the same time applying best practices to their primary functions and integrating their knowledge of analytics and strategic planning in an effort to move away from focusing on competitive market events among their suppliers.
Visibility into spend
A.T. Kearney found that just 9% of non-leading companies developed multiyear strategies for key spending areas compared to 80% of procurement leaders, and that leaders have visibility into 80% of their direct and indirect spending compared to about 50% for non-leaders. A.T. Kearney also notes the importance of going beyond Excel-based analysis toward more advanced analytics software that will allow businesses to understand their various cost drivers.
Untapped potential: Supplier Management
A.T. Kearney echoes the observation among top procurement professionals that supplier management represents some of the greatest untapped potential for cost savings and risk reduction across many industries.
The keys to unlocking this value are strategic, long-term initiatives with suppliers that support risk management and encourage innovation, defined within a robust supplier relationship management process. SRM programs are universal among procurement leaders, and more than 70% differentiate their programs between mainstream and strategic suppliers and have formal processes to support innovation initiatives — less than 5% of non-leaders take these steps when managing their supplier relationships.
Strategic business partners, advanced analytics, talent strategies
Leading procurement teams have gained and maintain their status as strategic business partners in large part by aligning with the CFO and working with many different business units to drive value and identify emerging trends that extend beyond basic cost reduction.
A.T. Kearney reports 25% of non-leading procurement programs did not see themselves as strategic business partners, and just 17% said they spend at least two-thirds of their time focused on strategic activities compared to more than 80% of procurement leaders.
Advanced analytics, a frequent discussion topic with the potential to vastly increase efficiency throughout the business, is an investment priority for all leading procurement teams but just 40% of non-leaders who typically limit their analytics to spend analysis.
And in an increasingly competitive market for the best talent, 80% of procurement leaders have a proactive strategy for both internal and external recruiting compared to just 40% of other businesses. Most strikingly, just 5% of non-leading procurement teams have created sustainable development programs for their employees, compared to over 90% of procurement leaders.